Everest Kanto Cylinder Limited (NSE:EKC) Surges 25% Yet Its Low P/E Is No Reason For Excitement

Everest Kanto Cylinder Limited (NSE:EKC) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 42% in the last year.

Although its price has surged higher, Everest Kanto Cylinder may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.6x, since almost half of all companies in India have P/E ratios greater than 32x and even P/E's higher than 58x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's inferior to most other companies of late, Everest Kanto Cylinder has been relatively sluggish. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

Check out our latest analysis for Everest Kanto Cylinder

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How Is Everest Kanto Cylinder's Growth Trending?

Everest Kanto Cylinder's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 16% gain to the company's bottom line. The latest three year period has also seen an excellent 46% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 16% during the coming year according to the only analyst following the company. With the market predicted to deliver 24% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that Everest Kanto Cylinder's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Everest Kanto Cylinder's P/E

Shares in Everest Kanto Cylinder are going to need a lot more upward momentum to get the company's P/E out of its slump. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Everest Kanto Cylinder maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - Everest Kanto Cylinder has 2 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.